After BlackBerry: Waterloo startups see more investment and talent come their way

The troubles at BlackBerry Ltd., which fired more than half its staff and lost more than 90% of its market value as consumers shunned its smartphones, might have spelled disaster for the company’s hometown of Waterloo, Ont. Instead, there are hot sports cars in the streets and new companies filling the refurbished office buildings.

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More than 450 startups opened for business in the twin cities of Waterloo and Kitchener last year, more than four times the number begun in 2009, said Waterloo-based accelerator Communitech. Many have been founded by former BlackBerry employees chasing their entrepreneurial ambitions.

“For those who are trying to get a new tech business off the ground, get it funded, and not get lost in the shadow of Silicon Valley, Waterloo can be the best place to get your company on the map,” said Sean McCabe, vice-president of engineering at drone manufacturer Aeryon Labs Inc. in Waterloo.

Adam Belsher left BlackBerry (formerly Research in Motion) in 2011 after 13 years at the company because he wanted to run his own business and felt the impact he was having at BlackBerry was eroding as the company got bigger.

Mr. Belsher is now chief executive of Waterloo-based Magnet Forensics. The company’s software is used by police to recover deleted information from computers such as e-mails, financial records and photographs.

“I saw RIM go through so many stages of growth and I take lessons from every one of those experiences,” said Mr. Belsher, who managed BlackBerry’s business with the biggest U.S. wireless carrier, Verizon. “There are very few companies that disrupt a mature market like wireless and create an entirely new multi-billion-dollar category, so I believe I have more than a few good nuggets that I can apply to Magnet.”

Mr. Belsher is one of many former BlackBerry employees who chose to stay in Kitchener-Waterloo, rather than move to Toronto or Silicon Valley.

BlackBerry became Canada’s most valuable company in 2007, just before Apple Inc. released the first version of its iPhone. At its peak in 2008, the company was valued at more than $80-billion, compared with about $4-billion now.

“BlackBerry actually made many, many millionaires who still live locally, who started investing in tech companies,” said Michael Litt, chief executive of video analytics startup Vidyard, based in Kitchener.

This, in turn, has attracted venture capitalists.

“I have seen … investors in town, private jets landing at Waterloo regional airport straight from Menlo Park and Silicon Valley,” said Mr. Litt, whose company has said it could float its shares within two years. “It has changed so fast.”

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The region’s turnaround story is similar to that of Oulu in Finland, where Nokia Oyj more than halved its workforce of 5,000. The city is slowly finding its feet again.

Oulu is now a leading candidate to host a data centre for Microsoft, which is taking over Nokia’s phone business. Former employees have also become entrepreneurs, doing especially well in the mobile gaming market.

There was a big concern in Waterloo that it would create an exodus of people

In the year ended April 30, 2013, more than $214-million was invested in startups in the Kitchener-Waterloo area. Three years earlier, the figure was just $500,000, Communitech said.

These investments include an $80-million infusion into Desire2Learn, which is developing online learning systems, and $14.5-million for Thalmic Labs, the maker of the Myo arm band that allows people to control electronic devices through arm motions and gestures.

“When BlackBerry was letting off thousands of people, there was a big concern in Waterloo that it would create an exodus of people,” said John Ruffolo, chief executive of OMERS Ventures.

OMERS Ventures, the venture capital arm of Canadian pension fund Ontario Municipal Employees Retirement System, along with U.S. venture capital firm New Enterprise Associates, made the $80-million investment in Desire2Learn in 2012 OMERS Ventures has also invested in HootSuite, Shopify, Visioncritical and BuildDirect, all of which are targets for IPOs in the next two years, Mr. Ruffolo said.

It became more confident about investing in Desire2Learn after Dennis Kavelman, a former chief operating officer of RIM, was hired, Mr. Ruffolo added. “Many great talented people left to join a variety of other startups and brought a nice stimulus of experience to some of these fledgling startups that has caused them to mature at a much faster rate,” he said.

Spark Capital, an early investor in Twitter Inc., and Bridgescale Partners, which invested in Shutterfly Inc , are also putting money into the region. Spark Capital bought into Thalmic Labs and mobile messaging company KIK, while Bridgescale has invested in Rypple, a company later acquired by Salesforce.com that makes software to allow workers and managers to register feedback about each other’s performances.

The Canadian government has also backed a $200-million-plus fund to indirectly invest in and support early and mid-stage startups.

Demand for commercial real estate, some of which has been sold off by BlackBerry, has risen. The average rent in Waterloo rose 10% to $12.42 a square foot in 2012, real estate services company CBRE said. As more commercial space has been built to meet growing demand, the rate of increase slowed to 4% in 2013 and is expected to flatten out soon.

Vidyard’s Mr. Litt knows first-hand how tough the real estate market is for startups. His company leased about 10,000 sq. ft. of the approximately one million available for startups in downtown Kitchener at the beginning of 2013.

“We took that with the assumption that, when we need more space, it would be easy to find,” he said. “When we spoke to our landlord later, there was nothing available anymore.”

Startups can also draw on engineering talent from the University of Waterloo, which has the world’s largest internship program of its type, requiring students to complete four to six internships as part of a four-year degree course.

The university has long been the feeder school for many technology companies, including Google, Cisco and Microsoft. It was once BlackBerry’s stomping ground come recruitment season, and has spawned companies such as OpenText that have tasted success in the U.S. and overseas.

Larry Smith, an adjunct associate professor of economics at the university, said BlackBerry’s success had overshadowed other companies and its reversal is now making them stand out.

While BlackBerry’s decline released a lot of talent into the local labour market, the region also has the infrastructure that makes it easy for companies to set up shop, he said.

“It used to be hard for startups to get good talent because RIM was hiring,” said David Yach, former chief technology officer for BlackBerry’s software business.

Mr. Yach, who spent 13 years with BlackBerry, left in March 2012 and co-founded Auvik Networks, an enterprise-networking startup.

“[BlackBerry] was effectively taking up all the oxygen in terms of talent,” he said. “Now a lot of new people are finding a home in the startup community.”

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